Bitcoin’s (BTC) price has hit a three-month low, reversing its post-election gains following Donald Trump’s victory.
While initial market sentiment blamed the downturn on US President Donald Trump’s tariffs and the recent Bybit hack, analysts are now pointing to a more structural cause.
Why Bitcoin Is Crashing, Analyst Offers New Perspective
Crypto analyst Kyle Chasse ascribes the ongoing crypto market crash to unwinding the cash and carry trade that has been suppressing BTC’s price for months. He explains that hedge funds have exploited a low-risk arbitrage trade involving Bitcoin spot ETFs (exchange-traded funds) and CME futures.
“Bitcoin is crashing. Wondering why? The cash & carry trade that’s been suppressing BTC’s price is now unwinding,” he stated.
The strategy involved buying Bitcoin spot ETFs such as those from BlackRock (IBIT) and Fidelity (FBTC). It also involved shorting BTC futures on the CME and farming the spread for an annualized return of approximately 5.68%.
According to the analyst, some funds used leverage to boost double-digit returns. However, this trade is now collapsing, causing massive liquidity withdrawals from the market and sending Bitcoin’s price into free fall.
BTC Price Performance. Source: BeInCrypto
The collapse of the cash and carry trade has led to over $1.9 billion in Bitcoin sold in the past week. This marks a significant decline in CME open interest as hedge funds unwind positions. It has also caused a double-digit percentage drop in Bitcoin’s price within days.
According to Chasse, hedge funds never bet on Bitcoin’s long-term price appreciation. Instead, they were farming a risk-free yield using arbitrage. Now that the trade is dead, they are rapidly pulling liquidity, intensifying Bitcoin’s sell-off.
“Why is this happening? Because hedge funds don’t care about Bitcoin. They weren’t betting on BTC mooning. They were farming low-risk yield. Now that the trade is dead, they’re pulling liquidity—leaving the market in free fall,” the analyst added.
Before the cash and carry unwind was identified, many traders blamed Trump’s aggressive tariffs. More recently, tariffs against the European Union sparked market fears. The recent Bybit hack also contributed to soured investor sentiment.
While Bitcoin remains under pressure, Kyle Chasse sees a path forward. More cash and carry unwinding is expected, meaning forced selling will continue until all hedge fund positions are cleared. Volatility will likely increase as leveraged positions get liquidated, leading to sharp swings in Bitcoin’s price.
If the analyst’s perspective is true, Bitcoin would need real, long-term holders to step in and absorb the selling pressure. According to technical analysis, Bitcoin’s next target could be around $70,000, a key support level that might stabilize the market.
Bitcoin Global In/Out of the Money. Source: IntoTheBlock
Around this level, 6.76 million addresses hold approximately 2.64 million BTC tokens acquired at an average price of $65,296. Therefore, this zone may offer significant support for Bitcoin price, as holders prevent further losses.
The analyst acknowledges that ETF-driven demand was partly real but heavily influenced by arbitrage players looking for quick profits. For now, the market is undergoing a painful but necessary reset. With it, traders and investors should brace for volatility in what could lay the groundwork for Bitcoin’s next directional bias.
